Screenshot of a breaking news alert e-mail from Q2 Please check your email to confirm your subscription Something went wrong We hate SPAM and promise to keep your email address safe x Continuing the recent string of rule proposals and consultations across the EU and elsewhere by leading financial regulators, Malta watchdog MFSA has issued a Feedback Statement on rules changes it proposed for Forex and CFD brokers back in October. While the MFSA reported a lot of industry pushback to both proposals, centering on the concern that if enacted they would put Malta brokers at a disadvantage, the MFSA reported that it is deciding to hold firm with the capital increase, but that it will relax somewhat as far as leverage goes.
For retail clients — 1: While a small country with but a handful of licensed Forex and CFD brokers, Malta has been viewed as an increasingly attractive place for Forex and CFD brokers to re locate, given new stringent rules put into place in both the UK and Cyprus, home to the most Forex brokers amongst EU countries. On 30 July , the MFSA issued a public notice, wherein it set out the updated criteria regarding the licencing of entities that would wish to provide online forex trading to clients.
The referred Notice was issued following various issues that the MFSA had come across in handling applications in this sector as well as various risk warnings issued at EU level alerting retail investors to the main risks involved in forex trading. This public notice is currently only applicable to applicants for a Category 2 or Category 3 Investment Services Licence that would like to provide online trading of complex products in terms of the Investment Services Act, Cap.
For the purpose of this Consultation Paper, the term firm, shall mean a Category 2 or Category 3 Investment Services Licence Holder authorised or in the process of being authorised to distribute complex speculative products. The MFSA is of the understanding that the majority of the referred firms resort to an online business model to distribute such complex speculative products.
The MFSA also notes that although the population of firms offering these products is quite diverse, there are two main types of firm that offer complex speculative products: The said capital should be satisfied on an ongoing basis and not just at licensing stage. Moreover, the industry outlined that this proposition is not in line with what other regulators are proposing and thus puts Malta as a financial services centre at a competitive disadvantage.
In this respect, the industry highlighted that the increase in capital requirement will not play a big role in addressing investor protection. Additionally, there are alternative measures that can be taken in order to ensure investor protection. This is because in effect, the Category 2 firms would still be assuming a significant element risk as Category 3 investment firms, albeit for a very short period of time until such instruments are transferred to the respective counterparty.
Some industry respondents expressed that there is the need to make a distinction between retail and professional clients and that these clients should not be treated equally. It was stated that imposing leverage limits of 1: It was stated that this will jeopardise any professional client acquisition for Maltese firms.
Moreover, the industry explained that most of these professional clients are classified as funds or other licence holders and setting such limits would essentially drive these clients out and push them towards less regulated jurisdictions. In fact, certain industry respondents stated that setting the leverage limit at 1: The industry also noted that certain Maltese firms, which are not licensed to deal in CFDs and which however have access to external platforms that deal in similar or same products, will not be subject to the same leverage constraints.
This, in turn would appear to put local forex firms at a competitive disadvantage. The general notion was that imposing tighter leverage limits will have a negative impact on licenced firms operating online business models. Certain industry respondents proposed that a maximum leverage limit of 1: The operations of online business models offering MiFID investment services in relation to complex speculative products pose a high risk for retail customers who may not be fully conversant with the risks associated with such speculative trading.
Leverage alters the exposure of clients to the underlying financial instrument and amplifies the financial outcome of the investment — be it positive or negative. It thus exposes clients to potential losses that can exceed their initial deposited funds. The proposed leverage limit of 1: The reason for setting such leverage limits is to diminish the risk of retail clients making losses greater than the investment made. The MFSA is of the view that retail clients are invariably being subject to increased risk by being exposed to high leverage levels.
Accordingly, by setting the proposed leverage limits of 1: The MFSA has also taken account of the concerns raised by the industry on this matter, in particular with respect to leverage limits for professional clients.
In view of the above, the Authority has set the following maximum leverage limits to be adopted by firms: In this context, it is important for firms to ensure that the procedures envisaged in SLCs 2.
Further details on this requirement will be issued by the MFSA in due course. This will come into effect within six 6 months from today. Cysec leverage is uncapped providing the customer passes appropriateness tests. You have retail clients at 1: All other clients means clients that are already professional? Screenshot of a breaking news alert e-mail from Q2 Please check your email to confirm your subscription.
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